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The unanticipated plunge in prices of vital minerals for EV batteries

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The prices of key minerals essential for electric vehicle (EV) batteries, such as lithium, nickel, cobalt, and copper, have experienced a surprising collapse in recent times. Lithium prices have dropped more than 80%, nickel by 40%, cobalt by 40%, and copper by about 10% since late 2022, defying earlier expectations of a period of elevated prices for battery minerals.

The primary cause of this collapse is the imbalance between supply and demand. While the demand for EVs continues to rise, actual sales have fallen short of projections. This has allowed mineral supplies to accumulate, creating an oversupply in the market. The delay in achieving price parity between mass-market EVs and traditional petrol vehicles, exacerbated by disruptions caused by the COVID-19 pandemic, has contributed to this supply-demand mismatch.

The discrepancy in pricing between EVs and cheaper petrol vehicles has made consumers more price-sensitive, leading to a temporary slowdown in EV purchases. The expectation of achieving price parity around 2025 was pushed back by two to three years due to pandemic-related disruptions in the automotive sector, causing factory closures and supply chain interruptions.

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Changes in government subsidies for EVs, observed in countries like China, Germany, and France, have also played a role in the decline in sales. France, for instance, limited the types of vehicles eligible for its EV grants scheme.

The oversupply of minerals is partly due to the mining sector’s rush to capitalize on the increasing demand for EVs. This has led to the opening of new mining projects globally, causing a surplus in the market.

The drop in battery mineral prices has already resulted in mine closures, with companies such as Core Lithium, Panoramic Resources, and First Quantum suspending or ceasing mining operations.

Despite the current oversupply, analysts suggest that mineral prices could recover once higher-cost producers are compelled to cut production. This may help rebalance the market in the coming years.

The silver lining for consumers is that falling mineral prices could ultimately reduce costs for carmakers, potentially leading to more affordable EVs. This, in turn, could support the broader global effort to transition to electric vehicles and reduce carbon emissions. Although the current situation presents a temporary setback, the long-term demand for minerals like lithium is expected to increase significantly as the adoption of EVs continues to grow.

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